There are a number of ways for commercial tenants to upgrade, renovate, or improve their premises with landlord contribution.

The difference in outcome often comes down to how the conversation is framed.

The reason?
They’re often framed around what the tenant wants, rather than what the landlord values.

If you want a landlord to contribute meaningfully, the conversation needs to shift from nice-to-have office upgrades to protecting and improving the asset.

When that alignment is clear, the scope for contribution becomes much broader. Done well, it’s not uncommon for landlords to fund part, or in some cases all, of the works.

Here’s how to approach it.

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Step 1: Understand how landlords assess value

Before progressing any upgrade plans, understanding Commercial Property Valuation Principles (as in, how the landlord's property is valued) will help you see how landlords view their asset and help start your conversation.

Here's a simple calculation to work out property value:

Value = Net Profit/Capitalisation (Cap) Rate‍

Let's break it down:

• ‍Net Profit - for landlords, it's the rent you pay, minus the cost of operating the building‍
• Capitalisation (Cap) Rate - trickier to define because there are so many variables. But, put simply, it's calculated by dividing a property's net operating income by its current value/appeal in the market.

Here's a working example…

The landlord receives $1,750,000 p.a. in rent (plus outgoings), and the landlord pays land tax costs of $250,000. This gives the landlord a net profit of $1,500,000.​

For ease of calculation, let's say everyone in the building has exactly five years left on the lease, and the property is in a desirable metropolitan area with potential development upside. This may lead to a valuer applying a cap rate of 6.0%.​

Using our simple calculation (above), the property’s value equals $25.0M ($1,500,000 / 6.0%).

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Step 2: Build a scope of works that supports the landlord's asset

The trick to getting your landlord to pay part of the refurb cost is to put together a works program that improves the Capitalisation Rate – the value multiplier. In your pitch to the landlord, share how the works program goes beyond improving the day-to-day experience. Demonstrate how targeted upgrades can strengthen the building’s leasing position and long-term performance.

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This could be through:​

Leasing appeal and future flexibility

Creating a space that can be easily adapted for future tenants helps reduce downtime and broadens appeal.

• Flexible, open-plan layouts
• Standardised meeting rooms and collaboration areas
• Removal of highly bespoke elements
• Consistent, neutral finishes

Maintaining rent positioning

Upgrades that support the overall quality of the space can help maintain or justify rent levels within the building.

• Refreshed front-of-house or client-facing areas
• Improved natural light flow (e.g. glass partitions)
• Tech-enabled meeting spaces

Keeping the asset competitive

Targeted improvements can help ensure the building remains aligned with current market expectations.

• Addressing gaps relative to competing buildings
• Focusing on upgrades that support leasing outcomes
• Avoiding overcapitalisation

Operational efficiency

Practical upgrades with clear long-term benefits are often well received.

• LED lighting upgrades
• Durable, low-maintenance materials
• Energy monitoring systems

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You can also provide a further incentive to entice the landlord to pay for all or part of the works. The easiest way to do that is to offer to sign onto a longer lease term.

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Step 3: Structure the agreement

Once the scope stacks up commercially - and you have a clear understanding of costs, supported by quotes from reputable, licensed trades - the deal structure becomes easier.

Landlords will typically look to:

• Fund works upfront
• Recover some or all of the cost through increased rent over time

But this is only one way to approach it.

If you’ve positioned the works well (clearly linking to how you're improving the property), you can negotiate alternatives such as:

• Partial landlord contribution with no direct repayment
• Higher incentives in place of landlord-delivered works
• Landlord-funded works in exchange for lease extension

Here are a few examples of how this conversation can play out. Let's say you plan to spend $1m to renovate the premises:​

• Scenario 1: Landlord pays 100% of capital expenses, you (the tenant) repays over the remaining lease term as additional rent with 10% interest.​‍
• Scenario 2: Landlord pays 80% of capital expenses upfront. The tenant doesn't repay capital but agrees to 5 additional years on the lease

Thinking about upgrading your space?

If you’re planning a refresh, renewal, or relocation, it’s worth understanding what your landlord is likely to support and how to position it effectively.

Tenant CS are conflict-free tenant advisors, helping you structure the right approach and get more from your lease.

Get in touch to explore what’s possible.

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